Delivery failure defense ends when credit card account is paid

A credit cardholder lost the ability to assert a merchant’s failure to deliver goods as a defense against a credit card bill when he paid the credit card company for the charge, according to the U.S. Court of Appeals for the Tenth Circuit. While the Fair Credit Billing Act says that credit card issuers are subject to any defenses that can be raised against a merchant, it limits the consumer’s claim to the amount of credit that is outstanding, the court said. Once the consumer paid the charge in full, there was no remaining outstanding credit (Hasan v. Chase Bank USA, N.A., Jan. 26, 2018, Moritz, N.).

The consumer ordered more than $1 million of wine from Premier Cru Fine Wines and paid for his purchases using two credit cards, one issued by Chase Bank USA and one issued by American Express Centurion Bank. The wine was to be delivered at various times in the future.

The consumer paid his credit card bills before all of the wine was delivered. Unfortunately, Premier Cru filed for bankruptcy and failed to complete the transaction. Citing 15 U.S.C. §1666i, the consumer demanded that the credit card companies refund his accounts in the amounts owed for the undelivered wine.

FCBA section. According to 15 U.S.C. §1666i(a), a credit cardholder who pays for a transaction using a credit card generally can raise against the card issuer any claim (other than a tort claim) and any defense that could be raised against the merchant that accepted the card for payment. However, there are limits, and one of those limits is that “the amount of the claims or defenses asserted by the cardholder may not exceed the amount of credit outstanding with respect to such transaction” at the time the claim or defense is first asserted (15 U.S.C. §1666i(b)).

To the court, the significant question was the meaning of “credit outstanding.”

“Credit outstanding.” “Credit” is defined by the FCBA as a debtor’s right to defer payment on a debt, the court said. “Outstanding” is not defined. However, since the common definition of “outstanding” is unpaid or uncollected, “‘the amount of credit outstanding’ is the amount of credit extended by the card issuer that the cardholder hasn’t yet paid back,” the court said.

Based on that definition, the cardholder’s claim against the two banks was limited to whatever amount of the credit card debts was unpaid.

That made the resolution of the suit simple. The cardholder’s claims against the banks were limited to the amounts he had charged for the wine and not yet paid. Since the cardholder alleged in his complaint that he already had paid the wine purchase charges in full, there was no credit outstanding. He had no claim to raise against the banks.

Counter-argument rejected. The court was unimpressed with the cardholder’s attempt to save his claims. He asserted that because the wine was bought to be delivered in the future, “credit outstanding” referred to what he had paid the card issuing banks, not what he had charged.

That didn’t work, the court said. The payments were not outstanding; rather, the delivery of the wine was outstanding.

The argument also failed because it contradicted the FCBA definitions of “credit” and “creditor,” the court added.

According to the court, the FCBA’s plain language made clear the cardholder had no claims against the card-issuing banks. The amount of the outstanding credit was $0, so his claim was limited by 15 U.S.C. §1666i(b) to $0.